Managing Risks forManaging Risks forWinnipeg’sWinnipeg’s

Water Treatment ProgramWater Treatment Program

Presented byPresented byTom R. Pearson, P. Eng, Project DirectorTom R. Pearson, P. Eng, Project Director

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AgendaAgenda

Background Project Profile Project Status Winnipeg’s Policy on Risk

Management Key Issues Initial Risk Assessment

Process Outcome

Ongoing Risk Management Management of risks – Examples Benefits of risk management Questions

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Background – Council’s Decision to Background – Council’s Decision to TreatTreat

In 1993 Council - Accepted the recommendation to undertake water treatment within a ten year time frame - And established a Water Treatment ReserveBetween 1995 and 1999 a comprehensive program of monitoring, pilot testing and engineering studies was undertakenIn 2000, Council adopted a recommendation that Winnipeg proceed with a water treatment programThis decision was supported by public consultation, public health officials and the opinion of an “expert panel” (low risk – high consequence)

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Background - Specific Background - Specific ObjectivesObjectives

Reduce the risk of a waterborne disease outbreak caused by chlorine-resistant microorganisms

Reduce chlorine disinfection by-products

Meet the Canadian Drinking Water Quality Guidelines

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Background - Plant LocationBackground - Plant Location

Red River

MainAqueduct

McPhillips Reservoirand Pumping Station

Wilkes Reservoir andHurst Pumping Station

MacLean Reservoir and Pumping Station

TacheBoosterStation

Branch II

Deacon Reservoirand Booster Station

Winnipeg

Deacon Reservoir

SHOAL LAKE(Indian Bay)

Falcon Lake

Winnipeg River

MANITOBA

ONTARIO

MINNESOTA

Kenora

Ross

Pinawa

AssiniboineRiver

Main Aqueduct

Intake

exsys2bw0512_cgs

Natalie Lake

Shoal LakeWatershedBoundary

Existing Water Supply SystemFigure 3-1

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Background - HistoryBackground - History

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Profile - Our New Treatment Profile - Our New Treatment PlantPlant

Located at the Deacon Reservoir Site. Design Life projected to be 2040Maximum Finished Water Production– 400 ML/dAverage Finished Water Production – 254 ML/dMinimum Finished Water Production – 100 ML/dTotal cost now projected at $300 Million

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PROFILE -PROFILE - AERIAL VIEW FROM SOUTH WESTAERIAL VIEW FROM SOUTH WEST

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Profile - The Water Treatment Profile - The Water Treatment ProcessProcess

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Project StatusProject Status

Detailed Design is underway, concurrent with constructionDesign will wrap up this yearAbout $55.3 Million spentOverall, we have committed about $192.2 Million to dateThe $300 Million budget projection appears to be “secure”

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Risk Management in WinnipegRisk Management in Winnipeg

In June, 1999 the City Auditor recommended to Council pursuant to a review of the Main Norwood Bridge, that “We must ensure a corporately focused and risk-based approach to managing major capital projects.”Policies and governance concerning risk are the responsibility of the Chief Financial OfficerAdministered under the auspices of the Corporate ControllerAll large projects ($10 Million or more) must report each quarter to the Committee on Fiscal Issues, outlining project status, emerging risks and steps to mitigate Reports are reviewed by a Major Capital Committee before submittal to the Committee on Fiscal IssuesRisk management is identified as a deliverable in project Terms of Reference

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Key IssuesKey Issues

Environmental Issues Organizational Issues Market Conditions Schedule Finances

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Environmental Effects Environmental Effects AssessmentAssessment

An Environmental Effects Assessment study of the effects the water treatment plant identified no adverse effects.The study was voluntary –not required by regulators.The results were shared with stakeholders and Manitoba Conservation.Two Public Open Houses were held in Springfield;All substantive issues were addressed.The Environmental Effects Assessment study reduced project risk, and improved the quality of the project.

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Organizational IssuesOrganizational Issues

This is a large complex project with four major consulting firms working from geographically diverse locationsCoordination/communication through “ERoom”Construction Management and “Fast Tracking” lead to risks and cultural issues for City and ConsultantsHiring and training of certified operators in time for commissioning and start-up (2008 by Council mandate) will be challenging

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Market ConditionsMarket Conditions

Many large new projects will be going to market over the scheduled construction periodA period of high inflation within the construction industry is forecast (time = money)A shortage of qualified contractors and personnel is anticipatedWe must make this an attractive project for contractors

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Aggressive ScheduleAggressive Schedule

April 2005 Finish preliminary designand environmental

effectsstudy

Spring 2005 Started building the water treatment plant

Fall 2008 Start testing the plant

End of 2008 Begin operating the plant

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FinancesFinances

The original water treatment program budget was $214 million to build the WTP and $12.75 million/yr to operateCouncil has approved an additional $13.3 million for risk mitigation initiatives and $2.8 million for shops/staff consolidation (Total budget now at $230.1 Million)The current rate model will provide about $117 Million in cash financingProjected cost is now $300 Million and additional borrowing will be requiredOnce the plant is up and operating, revenues from water sales are sufficient to cover operating and debt servicing without extraordinary increases to water rates

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Initial Risk AssessmentInitial Risk Assessment

Undertaken after preliminary design, before starting detailed design2-day workshop formatPre-workshop preparation;

survey of participants’ concernsorientation concerning risk assessment methodology and terms

Facilitated by S.M.A. Consulting Ltd.

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Workshop ParticipantsWorkshop Participants

23 in total, in addition to SMA staffCity – 9Earth Tech – 5UMA – 5EPCOR – 3TetrEs – 1

Participants were divided into 5 groups that considered specific types of risks

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Group AssignmentsGroup Assignments

1: Identify potential problems with the design. 2: Risk analysis focused on design of treatment processes, and mechanical equipment etc.3: Risks analysis focused on operations including commissioning, resources, operations, responses to disastrous situations, contingency planning etc.4: Risks associated with project coordination, project management, schedule, staging, estimating, cash flow, and external factors.5: Risks associated with constructability, underground work, construction logistics, staging, tie-ins, and contracting strategies etc.

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Quantifying Risk Factors – 4 Quantifying Risk Factors – 4 StepsSteps

1. Determination of the likelihood of the factor being encountered (e.g. probability, or a subjective descriptor)

2. Determination of the magnitude of the impact if the factor is encountered (e.g. dollar value or a subjective descriptor)

3. Determination of the overall severity of the factor by multiplying the likelihood (1) by magnitude (2).

4. The factors are then grouped based on the overall severity score and risk responses are developed

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Step 1 - Determination of Step 1 - Determination of LikelihoodLikelihood

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Step 2 – Determination of Step 2 – Determination of MagnitudeMagnitude

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Step 3 - Determination of Step 3 - Determination of SeveritySeverity

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Step 4 – Develop a Risk Step 4 – Develop a Risk ResponseResponse

Possible actions include:Reduce uncertainty by obtaining more information. (This may lead to a re-evaluation of the likelihood and sometimes the magnitude.)Eliminate or avoid the risk factor by partial or complete modifications to proposed ideas, a different strategy, etc.Transfer the risk element to other parties.Insure against the occurrence of the factor if possible.Abort the project if the risk is intolerable and no other means can be undertaken to mitigate its damages.

A planned response must be developed for all risks.

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OutcomeOutcome

120 risk items were identified by workshop participantsThese were synthesized into 44 project issues and 33 design issues by the Risk Consultant. Some of the risks were “Serious” to “Critical”

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Ongoing Risk ManagementOngoing Risk Management

The risk management plan defines specific tasks to be undertaken to mitigate the riskResponsibility and timelines for the tasks are assigned Follow up on the risk factors is undertaken on a regular basis until the project is complete.Risks are monitored on an ongoing basis by the project risk team and reviewed at monthly meetings

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Risk -Public InvolvementRisk -Public Involvement

The public open house (or action by a resident or RM) could result in additional requirements to mitigate perceived risks or nuisance or the need to file an Environmental Impact Statement. Then the project will be impacted.Assessment: L: 10; M: 50; S: 500 Recommended Action:

1- Open House2- Environmental effects assessment3- Continued communication

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Risk – Impact of Floodway Risk – Impact of Floodway OperationOperation

Floodway operation may impact early stages of Construction particularly bulk excavation. Impact is increased potential of base heave from till layer; increased pore pressure affecting slope stability.Assessment: L: 20; M: 15; S: 300 Recommended Action:

1- Stop excavation at 50% depth2- Install pump wells3- Pile first / excavate after - cost

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Risk – Long Duration Power Risk – Long Duration Power OutageOutage

If a power outage occurs then the DBPS pumps will stop and water supply to the city will be harmedAssessment: L: 10; M: 50; S: 500Recommended Action:

Could add backup power for partial UV and chlorination (chlorine - $2M at deacon, backup power $3). Come up with boil water strategy and potential for delay with regulators.

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Outcome – ChlorineOutcome – Chlorine

Risk analysis: The probability of an accident resulting in a catastrophic release of chlorine gas from a rail tank car is very unlikely, but the consequences are disastrous and may include injury or death to City personnel and the general public.

Recommended that this risk be eliminated or reduced. Additional capital funding of $7.3 million required for on-site sodium hypochlorite generation, and operating costs will increase by $74,000 per year.

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Outcome – PowerOutcome – Power

Risk analysis: The probability of a long duration power failure which would cause depletion of potable water storage and result in the need to supply untreated water is very unlikely, but the consequences are severe and include the need to boil water to ensure health safety during the power outage.

Recommended that the risk be eliminated. Additional capital funding of $6.0 million required for increased standby generation capacity, and operating costs will increase by $90,000 per year.

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The Benefits of Risk The Benefits of Risk ManagementManagement

QualityCredibilityCostValue

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Questions?Questions?